Property Tax Relief Program: New state program takes effect this year
(from Maine Townsman, February 1996)
By Michael L. Starn, Editor
A new property tax relief program as enacted by the Maine Legislature last session with little fanfare, in part because the program didn't actually take effect until this year. Now, as local officials prepare for the 1996 municipal tax year, implementation of the new program has been placed on the front burner.
The Business Property Tax Reimbursement Program allows businesses to be reimbursed by the State Tax Assessor for the property taxes they pay on "eligible" personal property first placed in service in Maine after April 1, 1995, and on or before April 1, 1996. Personal property on which taxes were assessed and collected in prior tax years are not eligible for the reimbursement.
This $4.7 million appropriated last year by the Legislature for this program represents the start-up of an ongoing personal property tax rebate program for Maine businesses. As long as the personally stays in the business's hands, the tax will be rebated by the State for a 12-year period. If additional funds are committed to the program in subsequent legislative sessions, qualified business property placed in service after April 1, 1996 will also be eligible for the reimbursement.
WHAT IS ELIGIBLE PROPERTY
Personal property that meets the date placed in service test may be eligible if it is determined to be "qualified business property".
Qualified business property, according to the statutory definition, means tangible personal property used exclusively for business purposes, and includes inventory or repair parts.
Qualified property is not limited to just new property. Used or secondhand property that is from outside of Maine and has been placed in service after April 1, 1995, may also be eligible.
Inventory parts, repair parts, and replacement equipment for which the owner is allowed to take an allowance for depreciation under the IRS code may also be eligible. In certain circumstances, qualified business property includes property that is affixed or attached to a building or other real estate, if it is used to further a particular trade or business activity.
Personal property which is entitled to exemption and personal property for which an income tax investment tax credit was taken are ineligible.
Personal property within a Tax Increment Financing (TIF) district may be eligible for reimbursement under the program. The captured value in a TIF is not considered exempt from taxation; instead, it is assessed and collected for a specific public purpose (e.g., funding infrastructure improvements, economic development).
HOW BUSINESSES FILE A CLAIM
The Bureau of Taxation is in the process of developing a booklet on this new program. A draft copy of the Business Property Tax Reimbursement Booklet was circulated for comments in early February. The two principal forms included in the booklet are the Assessors Notification and the Business Property Tax Reimbursement Application.
Before filing a request for reimbursement under the program, the property taxpayer must first notify the municipal assessor(s)-using the Assessors Notification form-of the business's intent to file a claim. The taxpayer must provide to the assessor(s) a listing that the owner believes constitutes eligible property. The assessor is required to verify and determine the assessed value of the personal property for which a reimbursement claim will be made.
The Assessors Notification form includes a description of the property, year claimed, whether it is new or used, the date acquired, its original cost, state of origin and the assessed value.
The assessor will have 60 days to return the notification to the taxpayer after the request is made or may send out the information with the business's tax bill, whichever occurs later.
The Business Property Tax Reimbursement Application-the reimbursement claim form-must be filed by the taxpayer within 60 days of the tax being paid. The State is obligated to pay the amount claimed within 180 days of filing. Claims will be filed with the Income Tax Division of the Bureau of Taxation.
If property taxes are paid in more than one installment, the business must submit multiple claims for reimbursement corresponding to the amount of property tax paid with each installment.
When making a claim for reimbursement under the program, businesses will need to provide an itemized list of their capital acquisitions. These may be attached to the claim form when sent to the Bureau of Taxation.
Businesses with operations in more than one community and eligible property at these different locations can file a consolidated claim form on a monthly basis, indicating the amount of reimbursable taxes paid to each community that month.
COMMUNICATING THE PROGRAM
Information about the program is slowly getting out to businesses and municipalities. Larry Record, director of the Property Tax Division, State Bureau of Taxation, says that completion of the booklet explaining the program will be an important step in communicating the program, giving business people and municipal assessors something tangible to work with.
Record says that the state will bulk mail the booklets to cities and towns when they become available. He also said that the state will be publicizing the program in other ways, including press releases and through mailings to businesses and practitioners with other tax information.
In Auburn, City Assessor Joseph Downey recently invited Record to a meeting of local businesses and representatives of accounting firms who may be handling most of the paperwork for the businesses seeking reimbursements. Fifty-five persons attended, with the top 10 Auburn taxpayers being represented. Staff from business accounting firms, who were also present, represented an additional 1,000 potential participants in the program, according to Downey.
Downey plans to send a cover letter with his Section 706 request (true and perfect list), which is used by assessors to get information on a taxpayer's property holdings, briefly explaining the program and letting businesses know where to get more information on it.
CONCERNS ABOUT PROGRAM
The number one municipal concern about the program seems to be its long-term viability. Is this a one shot deal or the first step in the eventual phase out of the personal property tax?
Governor King's Legislative Director Kay Rand says the Governor is committed to the program for the long haul. "[The personal property tax] was his number one issue with respect to tax policy," said Rand. "He viewed it as a tax on productivity."
"Maine has to stablize its loss of manufacturing jobs," she said. "It is the Governor's goal to add 8,000 manufacturing jobs (in the state) over three years."
Rand emphasized, however, that the business tax reimbursement program is not limited to just manufacturing businesses.
In response to some municipal officials' concerns that the state may back out of the program because of its future cost, Rand says, "The Governor is not interested in shifting the burden of personal property taxes onto real (estate) property taxpayers."
Another issue voiced by some municipal assessors is the likelihood that the State may find it necessary to mandate uniform depreciation schedules for personal property. With little direction from Taxation's Property Tax Division on assessing personal property other than recommending published valuation/depreciation guides, depreciation methodologies and schedules vary from town-to-town.
Auburn's Downey says that it would probably be in the best interest of the state to mandate a uniform approach to depreciation. Acknowledging that "none of us do it the same way", Downey says a uniform system will provide better long term predictability and better forecasting of the cost of the business property tax reimbursement program.
"If I depreciate very slowly and another town depreciates quickly, the State pays more to me (my city). The city receives more (taxes), and the property owner (who is getting reimbursed) doesn't care," says Downey.
On whether or not businesses will be more forthcoming with their "true and perfect list" information, the assessors interviewed for this article were uncertain. Larry Record, however, said he felt that over time municipal property tax rates would go down. This program will shift personal property taxes to the General Fund, says Record, and because they will be getting reimbursed for personal property, he believes business taxpayers would be more forthcoming with their § 706 information.
Even with Governor King's strong commitment to the program, the future price tag may cause some legislators to blink. Rand says the estimated cost of the program for the next biennial budget (FY 98 & 99) will be approximately $20 million.
Rand says that when the Governor's Office proposed the program, it did projections out over the entire 12 years-the number of years that reimbursement will be made on this year's eligible property. By the 13th year, says Rand, the projected cost of the program should be about $70 million. These projections were shared with the Legislature, she said.
Current estimates put the total amount of taxes on personal property collected statewide at about $100 million.